Income Taxes

The sources of income before income taxes for the years ended December 31, 2016, 2015 and 2014 are presented as follows:



	Year Ended December 31,
(in thousands)	2016		2015		2014
Income before taxes:
United States	$	41,804	$	10,686	$	7,337
Foreign	191,089		130,408		134,166
Total income before income taxes	$	232,893	$	141,094	$	141,503

The Company's income tax expense for the years ended December 31, 2016, 2015 and 2014 consisted of the following:



	Year Ended December 31,
(in thousands)	2016			2015			2014
Current tax expense (benefit):
U.S.	$	(2,886	)	$	1,277		$	133
Foreign	59,515			45,150			44,780
Total current	56,629			46,427			44,913
Deferred tax expense (benefit):
U.S.	9,908			2,037			628
Foreign	(7,742		)	(5,862		)	(5,526		)
Total deferred	2,166			(3,825		)	(4,898		)
Total tax expense	$	58,795		$	42,602		$	40,015

The following is a reconciliation of the federal statutory income tax rate of 35% to the effective income tax rate for the years ended December 31, 2016, 2015 and 2014:



	Year Ended December 31,
(dollar amounts in thousands)	2016			2015			2014
U.S. federal income tax expense at applicable statutory rate	$	81,513		$	49,383		$	49,526
Tax effect of:
State income tax expense (benefit) at statutory rates	1,341			894			(985		)
Non-deductible expenses	3,482			4,947			4,943
Share-based compensation	(1		)	(684		)	(266		)
Other permanent differences	(4,929		)	(5,505		)	(5,563		)
Difference between U.S. federal and foreign tax rates	(18,432		)	(13,615		)	(13,677		)
Provision in excess of statutory rates	2,490			2,400			955
Change in federal and foreign valuation allowance	(8,163		)	1,724			4,357
Other	1,494			3,058			725
Total income tax expense	$	58,795		$	42,602		$	40,015
Effective tax rate	25.2		%	30.2		%	28.3		%

The tax effect of temporary differences and carryforwards that give rise to deferred tax assets and liabilities from continuing operations are as follows:



	As of December 31,
(in thousands)	2016			2015
Deferred tax assets:
Tax loss carryforwards	$	34,858		$	38,335
Share-based compensation	9,252			6,618
Accrued expenses	16,970			15,826
Property and equipment	10,947			6,723
Goodwill and intangible amortization	15,635			20,467
Intercompany notes	12,654			15,365
Accrued revenue	21,005			11,502
Other	12,517			11,369
Gross deferred tax assets	133,838			126,205
Valuation allowance	(37,255		)	(48,566		)
Net deferred tax assets	96,583			77,639
Deferred tax liabilities:
Intangibles related to purchase accounting	(27,974		)	(30,722		)
Goodwill and intangible amortization	(14,457		)	(7,615		)
Accrued expenses	(24,124		)	(13,563		)
Intercompany notes	(2,559		)	(2,587		)
Accrued interest	(37,514		)	(29,604		)
Capitalized research and development	(9,520		)	(5,014		)
Property and equipment	(2,029		)	(5,428		)
Accrued revenue	(4,668		)	(4,155		)
Other	(4,180		)	(4,413		)
Total deferred tax liabilities	(127,025		)	(103,101		)
Net deferred tax liabilities	$	(30,442	)	$	(25,462	)

Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets as of December 31, 2016 are expected to be allocated to income taxes in the Consolidated Statements of Income with the following exception. A $37 million tax benefit of net operating losses generated from share-based compensation has been excluded from the amounts disclosed for tax loss carryforwards and valuation allowances to the extent the benefit would be recognized in equity if realized.

As of December 31, 2016, and 2015, the Company's U.S. federal and foreign tax loss carryforwards were $231.9 million and $229.2 million, respectively, and U.S. state tax loss carryforwards were $88.1 million and $88.7 million, respectively.

In assessing the Company's ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will only realize the benefits of these deductible differences, net of the existing valuation allowances, as of December 31, 2016.

As of December 31, 2016, the Company had U.S. federal and foreign tax net operating loss carryforwards of $231.9 million, which will expire as follows:



(in thousands)	Gross		Tax Effected
Year ending December 31,
2017	$	1,012	$	251
2018	350		85
2019	2,421		606
2020	6,777		1,474
2021	5,179		1,173
Thereafter	188,277		59,988
Unlimited	27,868		6,471
Total	$	231,884	$	70,048

In addition, the Company's state tax net operating loss carryforwards of $88.1 million will expire periodically from 2017 through 2036.

No provision has been made in the accounts as of December 31, 2016 for U.S. federal and state income taxes which would be payable if the gross undistributed earnings of the foreign subsidiaries were distributed to the Company since management has determined that the earnings are permanently reinvested. Gross undistributed earnings reinvested indefinitely in foreign subsidiaries aggregated $997.7 million as of December 31, 2016. The determination of the amount of unrecognized deferred U.S. income tax liabilities and foreign tax credits, if any, is not practicable to calculate at this time.

Accounting for uncertainty in income taxes

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2016 and 2015 is as follows:



	Year Ended December 31,
(in thousands)	2016			2015
Beginning balance	$	16,370		$	15,028
Additions based on tax positions related to the current year	5,847			3,620
Reductions for tax positions of prior years	(255		)	(998		)
Settlements	(642		)	(918		)
Statute of limitations expiration	(3,332		)	(362		)
Ending balance	$	17,988		$	16,370

As of December 31, 2016 and 2015, approximately $15.1 million and $11.5 million, respectively, of the unrecognized tax benefits would impact the Company's provision for income taxes and effective income tax rate, if recognized. Total estimated accrued interest and penalties related to the underpayment of income taxes was $2.1 million and $3.1 million as of December 31, 2016 and 2015, respectively. The following income tax years remain open in the Company's major jurisdictions as of December 31, 2016:



Jurisdictions	Periods
U.S. (Federal)	2013 through 2016
Spain	2009 through 2016
Australia	2010 through 2016
U.K.	2009 through 2016
Germany	2009 through 2016

The application of ASC 740-10-25 and -30 requires significant judgment in assessing the outcome of future income tax examinations and their potential impact on the Company's estimated effective income tax rate and the value of deferred tax assets, such as those related to the Company's net operating loss carryforwards. It is reasonably possible that the balance of gross unrecognized tax benefits could significantly change within the next twelve months as a result of the resolution of audit examinations and expirations of certain statutes of limitations and, accordingly, materially affect the Company's operating results. At this time, it is not possible to estimate the range of change due to the uncertainty of potential outcomes.